How to invest in China’s next growth story: Tourism
HONG KONG (MarketWatch) — Today one of the few numbers from China still showing impressive growth is tourism. Expect worries over the economy or stock market to be forgotten as the start of Golden Week this Thursday sees a giant holiday exodus.
China’s mass tourism has been a popular theme for investors, but as it evolves analysts are trying to find new investable options.
It’s easy to get sold on the big picture growth. Although only one in 20 Chinese currently have a passport, already in aggregate they spend more abroad than Americans.
But investors seeking to profit from this resilient trend need to beware of the changing travel and spending habits of Chinese tourists.
While HSBC recently forecast a doubling in outbound trips by Chinese tourists in the next decade — after reaching after 109 million trips in 2014 — simply assuming a continuation of current trends will not work.
Hong Kong, for example, is by far the biggest destination for outbound Chinese tourists, but may already have peaked. After mainland tourist visits reached 47 million last year, in July their numbers fell almost 10%.
Instead, other destinations are now taking a bigger share, especially as steep falls in currencies from the Australian dollar USDAUD, +0.8671% to Japanese yen USDJPY, +0.48% and Thai baht USDTHB, +0.2558% throw up new bargains for Chinese vacationers.
Japan stands out as one of the big winners from China’s maturing tourism market. Nearly 600,000 Chinese visited Japan in August, more than double the total a year ago. Reports suggest Japanese hot springs are now trending on Chinese web searches.
A secondary effect of this tourism surge is retail spending, which Societe General notes is already driving expansion of retail outlets, particularly foreign luxury brands. They report that Kate Spade estimated that 40% to 50% of its department store traffic, particularly in Tokyo, is coming from inbound tourists from China.
Chinese holiday makers have also emerged as a key driver of South Korea’s domestic consumption in recent years, with visitor arrivals from China hitting a record high of 6 million last year. But this trend has slowed this year, although mainly down to the MERS virus health scare.
The difficulty comes in gaining reliable, investable exposure to this spending. Before luxury goods appeared a sure bet but now Chinese spending in one destination can be displacing it in another due to currency arbitrage. This is hardly surprising because much Chinese spending overseas occurs simply because goods are cheaper than at home. Airlines and hotels have been popular proxies but often the currency weakness that benefits tourists also hits company earnings.